SHAPING THE FUTURE HOW CHANGING DEMOGRAPHICS CAN POWER HUMAN DEVELOPMENT

The proportion
of government
spending on social
pensions is low
FIGURE 4.14:
Social protection spending on pensions lags
behind in many countries
BOX 4.6:
Japan sustains a system by containing costs
Japan’s social security system provides public
pensions, health insurance and long-term
care for old-age security. Pension systems are
mainly operated by the national Government,
and health-care services by prefectural governments,
with key roles for private organizations.
The social security system is funded through
both private and public sources: 60 percent
by insurance contributions, 30 percent by
public expenditure and about 10 percent by
asset income.
While an ageing population exerts a heavy fiscal
burden, the Government has managed to contain
costs. In 2009, it spent 10 percent of GDP
on old-age and survivor benefits, less than several
advanced countries with relatively younger
populations, such as France at 14 percent and
Germany at 11 percent. The Government has
sought to moderate benefits to address rising
demand, and the structure of the pension system
has been adjusted several times. In 2004,
benefits for new retirees were cut by 1 percent
a year. People have been encouraged to work
longer and take later retirement. Public pensions
are progressive, meaning high-income
retirees draw fewer benefits.
The sustainability of Japan’s medical care
and long-term care insurance services will be
tested in the next 10 years, however, when the
baby-boomer cohort will turn 75. Demand for
social security benefits will hit its peak.
Sources: National Institute of Population and Social Security
Research 2011, Government of Japan 2016, OECD 2013,
Takashi 2014.
protect fiscal sustainability during this process
(Box 4.6). In all cases, good design, governance
and delivery are critical.
While domestic savings as a share of GDP
has risen in some high- and middle-income
countries with a greater share of older people,
and can produce a demographic dividend as well
as cushioning the process of ageing for individuals,
it does not increase indefinitely. A reversal
is especially likely as the number of ‘oldest old’
people grows, given increased needs for medical
care and support services. And introducing a
pension scheme, regardless of the type, can lead
to a drop in overall per capita savings. 74
Governments in some Asian countries have
made efforts to encourage saving—people in
Singapore are required to save a high fraction of
their earnings through mandatory contributions
to a central provident fund. Some East Asian
economies, including China, have achieved higher
rates of personal saving without government
mandates. This stands in sharp contrast with
the public pension systems in Europe, and to
a lesser extent in Japan and the United States,
which tend to provide for retirees out of current
taxes. 75 Some examples of successful pension
systems are highlighted in Box 4.7.
ACCESSIBILITY IS IMPROVING
BUT STILL LIMITED
136
Source: ILO 2014a.
Interactions with friends, families and the wider
community are vital to older people. As the region’s
population ages, and more seniors begin